7 minute read
Commercial Pulse Check
By Annette Hubick
That seems to be the most often-used phrase to describe the state of Alberta’s commercial insurance market. The market is showing signs of emerging from the hard market that has posed significant challenges for insurance brokers and their clients for the last several years. “Improved insurer profitability has provided relief in rates and increased capacity. These good results have catapulted companies to increase their written premium goals,” says Rosetta Bilodeau, VP of brokering and insurer relations, Rogers Insurance. “We are starting to see the light at the end of the tunnel,” adds Scott Treasure vice-chair / CEO of Excel / Treasures Insurance & Risk Management.
Insurance Bureau of Canada’s (IBC) metrics indicate market improvement. “In Alberta, calls and concerns coming into IBC’s consumer information centre are down and our risk management team—which helps find coverage for challenged risks—has seen a noticeable reduction in case loads,” reports Aaron Sunderland, IBC vice president, western & pacific.
That’s the good news.
The Challenges
The bad news is that there is still a long way to go—a lot of rubble to clear to reach the other side of that tunnel, so to speak. That “rubble” includes damaged broker-client and broker-underwriter relationships, evolving expectations of both insurers and clients, a battle-fatigued workforce and newly entrenched client behaviours created by the cost saving measures they had adopted in response to the hard market. “Hard markets always create an awareness and acceptance of higher self-insured retention or deductible approaches with clients,” explains Doug Morrow, CEO, managing director, RiskTech Insurance Services. “This volume will never return to the marketplace. After self-insuring an exposure or accepting a higher deductible strategy, clients will never buy that extra protection again.”
Rising claims costs, increased frequency of weather-related losses and low interest rates contributed to the erosion of insurers’ profits that led to this hard market. These factors persist. The commercial P&C industry isn’t just contending with the hard market, it is also impacted by inflation, regulation, new exposures and the consolidation or sale of brokerages and insurers. Add in the impact of the COVID-19 pandemic on all businesses, including brokers and insurers—many of whom weren’t around during the last hard market over 15 years ago—the result is a perfect storm of challenge.
Most challenges facing the insurance industry are common across country, if not the globe, but some are unique to Alberta. Catastrophic weather losses continue to rise and now exceed $2 billion annually in Canada, “No where is this more true than in Alberta, where we continue to see a dramatic increase in the number and size of storms and hail events where insured losses are measured in the hundreds of millions of dollars, year after year.” offers Sunderland.
Another made-in-Alberta challenge has been the provincial government’s introduction of Direct Compensation for Property Damage (DCPD). “With insurers only able to draw on experience from other jurisdictions, rate setting for DCPD has not been consistent across insurers. This is more pronounced in commercial lines versus personal, as commercial generally has less data to draw on,” says Kevin Lea, president of Fuse Insurance. “As time passes and Alberta claims data is generated, this should help rates stabilize and encourage insurer competition for DCPD.”
Brokers are also having to navigate the inconsistent pace of market stabilization across lines, industries and client status. “We are still seeing conservativeness on the renewal book of business, however new business is being looked at very aggressively in certain segments of business,” observes Doug Laird, president, Rogers McLean Shaw Insurance Brokers. “Certain classes of business, including hospitality, transportation and realty, are still in a market where underwriters want to hold their pricing, while classes that are historically profitable including contractors, retail and other small business segments are being heavily targeted.”
“The rise of cyber-insurance coverage has drastically increased the role of the broker in educating the client in this area and therefore also in our own understanding of the coverage and the extensive underwriting requirements that go along with it,” says Treasure. However, at the same time as more clients are gaining an appreciation for the need for cyber insurance, “Cyber insurers are being hit with many losses, driving premiums up and capacity down,” adds Bilodeau.
The Opportunities
The silver lining is that when challenges abound, so do opportunities. “Insurers and brokers have an opportunity to help inform customers of these risks, what can be done to help mitigate them and the important role insurance plays in an overall cyber risk mitigation strategy,” explains Sunderland. The hard marketforced many customers to become aware of and embrace the concept of risk mitigation, which presents brokers with an opportunity to underscore their value as a trusted source of advice and expertise.
To be candid, one provider’s disloyal client is another’s prospect. There’s nothing like a huge cost increase to spur re-examination of needs and expenses. “This means that they are more willing to dive into the details and look to find coverage improvements and premium savings,” explains Lea. Also, when there’s disruption caused by consolidation or sale of brokerages, “Many files in transition creates opportunity for well positioned ‘tunedin’ brokers to grow,” says Treasure.
Alberta’s economic recovery also fosters opportunity. “Growing economies mean growing businesses, which means more assets and exposures to insure, leading to higher premiums for insurers. This can help Alberta outperform other Canadian jurisdictions,” says Lea. Beyond Alberta’s rebounding oil and gas industry, brokers can look for business opportunities by observing which industries the provincial government is targeting to attract and grow, e.g., technology, renewable energy, entertainment, etc.
Although the Alberta market is in transition, a return to the “good old days” isn’t expected. “Insurers are no longer willing to accept poor loss ratios in exchange for volume, so they are pushing their underwriters to only accept best-inclass risks even if that means dropping industry sectors or coverages. Alternatively, some carriers are still accepting previously poor risks, but are now charging a much higher rate in hopes of returning to profitability,” says Lea.
Clients, too, have changed. As Laird articulates, “They are more educated and astute when it comes to premiums, coverage and rate increases. COVID-19 has had an impact on bottom line for many clients, and as a result, we are seeing frustration, push back, and questioning. As a result, our brokers are being challenged with finding the right solution and the right insurer.” Client expectations have also changed, he advises. “Communication and touch points have always been important, but a service deficiency in this area will leave a broker with a lost client. Clients expect more from their brokers, and we must be prepared to meet their needs. Otherwise, they will seek service elsewhere.”
Looking Ahead
Despite all the challenges facing the commercial insurance market, the brokers I talked to have a positive outlook for the future.
Treasure expects the consolidation trend to continue, “Not just the large brokers continuing to get larger, but between insurance companies, as well as insurers buying brokers. That said, I believe the death of the independent locally owned broker has been greatly exaggerated. There has always been room in relationship-based industries like ours for smaller, innovative and nimble operations that also include local ownership.”
Insurers adopting a risk sharing approach is anticipated. “Carriers will look to ’ventilate’ liability limits; subscribe or go primary/ excess on casualty; subscribe equipment breakdown; and others. The business will get more complex in order to spread risk. It will be lots of work but good for the industry in Canada generally,” believes Morrow.
“As long as we see sustainable and profitable improvement with insurer results, insurance capacity and a softening approach to rates is forecasted,” says Laird. For his part, Lea is hopeful but cautious. “I anticipate a slight easing of hard market conditions, but further global financial shocks or localized disasters could derail that process. Hopefully better claims outcomes lead to better insurance coverage and pricing for Alberta’s commercial policyholders.”
After conducting this commercial pulse check, if I had to choose a phrase to sum up the prevailing prognosis, it is “cautiously optimistic.”
Annette Hubick operates Link PR Incorporated—a marketing and communications consulting firm—and has been the publisher/ editor of Alberta Broker since 1996. Annette@LinkPR.ca
